Burn rate

Full lap (Full definition)

Burn rate is a critical financial metric that measures how quickly a company expends cash, typically expressed as the monthly rate at which a business consumes its available capital to fund operations before generating positive cash flow. This essential indicator quantifies the speed at which organisations deplete their cash reserves, serving as a fundamental gauge of financial sustainability and operational efficiency in business planning and investor relations.

There are two primary types of burn rate that businesses track: gross burn rate and net burn rate. Gross burn rate measures total monthly cash outflows, including all operational expenses such as salaries, rent, marketing costs, and other overheads, regardless of incoming revenue. Net burn rate calculates the actual monthly cash depletion after accounting for revenue generation, providing a more accurate picture of true cash consumption. Net burn rate is calculated by subtracting monthly revenue from gross burn rate, revealing whether a company is moving toward or away from cash flow positivity.

The importance of burn rate extends far beyond simple accounting—it represents the lifeblood metric that determines business survival and growth potential. For startups, scale-ups, and established companies navigating challenging market conditions, burn rate directly influences strategic decision-making, fundraising timing, and operational priorities. Understanding and managing both gross and net burn rates effectively can mean the difference between sustainable growth and business failure, making them among the most closely monitored metrics by executives, investors, and stakeholders.

Burn rate serves as the primary indicator of runway length, calculating how long a company can continue operations before requiring additional funding or achieving cash flow positivity. This metric enables crucial strategic planning, informing decisions about staffing levels, marketing expenditure, product development timelines, and expansion strategies. Companies with high burn rates face constant pressure to accelerate revenue generation or secure additional capital, whilst those with controlled burn rates enjoy operational flexibility and strategic advantages.

Investors scrutinise both burn rate types as key indicators of management competency and business model viability. Efficient burn rate management demonstrates disciplined resource allocation and sustainable growth strategies, increasing investor confidence and improving fundraising prospects.

For businesses navigating competitive markets, mastering burn rate management provides essential competitive advantages, enabling sustainable growth whilst maintaining financial resilience and strategic flexibility.